SBC Inc. is a profitable firm (tax rate of 30 percent) that wants to determine its weighted average cost of capital (WACC). Currently, SBC has annual bonds with 8.80 percent coupon rate ($1,000 par) with 18 years to maturity. A bond currently sell for $1302 each. The bonds have a AA rating. The firm has no preferred stock. SBC has common stock (par=$18). SBC beta is 1.3 and the current market risk premium is seven percent while the T-bill return is 4 percent. SBC common stock is currently trading at $28. The stock over bond premium is 4.2 percent. The market value of debt is $360M while the market capitalization is $740M.

1. Find the market value of the firm of the firm
   1. $1,100,000,000
2. Find the weights to be used in the calculation of WACC
   1. 0.3273
   2. 0.6727
3. Find the required return for SBC debt
   1. 6%
4. Using the stock over bond approach, find the required return for SBC equity
   1. 13.1%
5. Find the weighted average cost of capital
   1. ???